Managerial Accounting Chapters 4-6

Even in today’s automated environment, direct labor is sometimes the appropriate basis for assigning overhead cost to products.

In the first stage of activity-based costing, overhead is assigned to products using costdrivers.

The first step in activity-based costing is to identify and classify the major activitiesinvolved in the manufacture of specific products, and allocate manufacturing overhead tothe appropriate cost pools.

Before costs are allocated to the cost pools, the cost drivers for each cost pool must beidentified.

Under ABC, overhead costs are shifted from the high-volume product to the low-volumeproduct.

Activity-based costing does not change the amount of overhead costs, but it doesallocate those costs in a more accurate manner.

Overhead costs are not allocated by means of arbitrary volume-based cost drivers underABC.

Value-added activities increase the worth of a product or service to customers andinvolve resource usage that customers are willing to pay for.